While the US economy was exhibiting signs of recovery and the labor market was stabilizing, the US stock market and Treasury bonds were also holding steady. Inflation in the US was decreasing, and global central banks were busy evaluating the overall effects of tariffs. Suddenly, an announcement was made that US President Donald Trump had suggested a 50 percent tariff on the European Union, set to go into effect on June 1.
Trump accused European policymakers of employing delaying tactics in tariff negotiations, which he believes will be unproductive. The timing of this announcement was problematic, especially since he had already warned Apple, the iPhone manufacturer that it needed to move its production to the US or face a 25 percent tariff on its imports.
The financial market reacted immediately, gold prices soared, Dow futures dropped significantly, and by the end of the day, the Dow Jones Industrial Average had fallen by 2.47 percent. The S&P 500 decreased by nearly 39 points, and the Nasdaq Composite dropped by 1 percent. Yields on 10-year US Treasury bonds decreased by 4.4 percent, and the US dollar weakened as well.
According to the US Treasury Secretary, Trump felt that the trade offers from the European Union were inadequate. He expressed hope that the threat of new tariffs would encourage the EU to engage more seriously in negotiations. European stocks also suffered significant losses due to Trump’s tariff recommendations.
Following last week’s downgrade of the US credit rating, the US Dollar declined against major currencies. The Dollar Index (DXY) has fallen below the 100 mark. Meanwhile, Bitcoin has reached new highs.
In the currency markets, both the Pound Sterling and the Euro rose by nearly 1.5 percent. However, the Swiss Franc and Japanese Yen emerged as the true winners, benefiting from their status as safe havens. The JPY is also gaining from a rise in the Consumer Price Index (CPI), which keeps the prospect of an interest rate hike in Japan in play.
On Thursday, Japan will unveil its latest CPI data, and investors will be watching the Bank of Japan for potential shifts in interest rates.
On Wednesday, the Federal Reserve will publish its meeting minutes, which should provide further insight into the thoughts of US policymakers regarding their next steps.
Last week, I mentioned that Moody’s downgrade of the US by one notch could lead to an increase in gold prices. However, I wasn’t anticipating such a big jump of 5%. Furthermore, Trump’s proposal of a 50% tariff on the European Union has boosted the positive outlook for gold, as the market recognizes that the US-China trade truce remains unsettled issue and could reignite if not resolved within the 90-day timeframe. A renewed trade war would certainly drive gold prices higher.
In light of the latest tariff developments, I believe we may have reached the low point for gold.
If Trump’s suggested 50 percent tariff on the EU persists and the EU responds aggressively rather than seeking a resolution, gold prices are likely to continue rising. However, if the EU opts for a compromise, gold may experience a sharp correction.
On Monday, I wouldn’t be surprised to witness a substantial upward movement due to the absence of key market players. Recently, Asian traders have shown considerable enthusiasm for gold.
The Chinese market is likely to take the lead since their central bank is a major gold purchaser, sourcing gold through the over-the-counter (OTC) market via banks.
Even if gold prices soften, I believe buyers will step in if prices decline. Unless a truce between trading partners is announced, the situation could create a potential for correction. The outlook for gold remains positive.
Even a simple indication from the EU that they are open to discussions could lead to a relaxation of gold prices, easing pressure on the US dollar and financial markets.
In the meantime, with Memorial Day on Monday, reports on Durable Goods Orders and Consumer Confidence will be released on Tuesday, followed by the FOMC meeting minutes on Wednesday.
On Thursday, we can expect jobless claims, the US Preliminary Q1 GDP, and Pending Home Sales data. Lastly, on Friday, the Core PCE, which is the Federal Reserve’s preferred inflation measure, will be announced.
One thing is certain that the global financial market is tense due to the increasing geopolitical risks.
WEEKLY OUTLOOK — May 26-30
GOLD @ $ 3357.40 — Gold is approaching another unpredictable week. Support levels on the downside are at $ 3318 and $ 3265. Although there is potential for an upward movement, it must surpass the range of $ 3385-95 to reach $ 3415-20.
EURO @ 1.1365— The outlook is slightly positive, but the Euro needs to break through the 1.1460-70 area for further gains, which I find unlikely. However, a drop below 1.1250 would open the door to a decline towards 1.1190.
GBP @ 1.3538— The main support level is around 1.3410, which is expected to hold firm. The British Pound needs to surpass 1.3625 to reach 1.3680, but breaking through that level might prove challenging for the pullback.
JPY @ 142.57— The current USD/JPY pair is showing signs of weakness and needs to hold at 141.20. However, if the USD manages to break through 143.60 and exceed 144.50, it could reach 145.10. Otherwise, 140.25.
Copyright Business Recorder, 2025
